Capital Loss Carryover

Capital Loss Carryover

A Capital Loss Carryover refers to the ability to apply a capital loss that exceeds the capital gains in a given tax year to future tax years. This allows taxpayers to offset future capital gains with the losses incurred in previous years, effectively reducing their taxable income.

For example, if an investor realizes a capital loss of $5,000 in a tax year but only has $2,000 in capital gains, they can use the $2,000 to offset the gains, reducing taxable income. The remaining $3,000 can then be carried over to future years, where it can be used to offset future capital gains until it is fully utilized.